Niche Mortgage programs

Tuesday, May 24, 2011 -
Article by:
Lender411 Member

What is a Depletion of Assets Mortgage?

An Asset Depletion Mortgage allows the borrower to qualify by deriving an income from assets they currently hold. This program is not meant for a struggling self employed home buyer with no assets and no income on their tax returns. Two years tax returns are still required, and most likely significant assets will be required. But for a solid borrower with $1,000,000 in the bank, this will be a big boost.

Eligible Assets for Asset Depletion QualifyingAssets that can be used for qualifying include cash equivalents, such as CD's, and funds in checking and savings accounts. Also, trust accounts and investment portfolio's. Retirement accounts like IRA's and 401k's can be used, but only if the borrower is 62 years of age or older.

Example of Asset Depletion Mortgage for 43 year oldLet's say a 43 year old potential California home buyer only shows $5,000 a month income on their tax returns. This results in a debt to income ratio that is too high. But the borrower has $1,000,000 in "liquidable" assets. (new word) The niche portfolio lender will amortize the $1,000,000 using a 5% return over 30 years. This results in an additional $5,365 in monthly income that is added to the borrowers verified income. Using $10,365 a month, the borrower suddenly has the debt to income ratio he needs to purchase his home.

Example of Asset Depletion Mortgage for 73 year oldLets say a 75 year old is looking at purchasing a home in the Orange County coastal city of Newport Beach, CA. His tax returns reflect income of $5,000 per month, including Social Security income. But he has $1,000,000 in "liquidable" assets. The lender in this case will still use a 5% return, but shortens the amortization to only 10 years. This gives the California home buyer an additional $10,606, for a total qualifying income of $15,606.

Huge for Retired California BorrowersThe lender determines the amortization of the income used to qualify based on the age of the borrower. The amortization can't be more that 30 years, but can't be less than 10 years. The base age is 85. So any borrower 55 years or younger will have their assets amortized over 30 years. Between the ages of 55 and 75, their age is subtracted from 85. So a 62 year old's assets would be amortized over 23 years. (85-62 = 23).